Financial Reporting - Inventory, Taxes, LT Assets & Liabilities

Inventory cost is least likely to include:

• production-related

  storage costs.

• costs incurred as a result of normal waste of materials.

• transportation costs of shipping inventory to customers.

During periods of rising inventory unit costs, a company using the FIFO

method rather than the LIFO method will report a lower:

• current ratio.

• inventory turnover.

• gross profit margin.

A company using the LIFO method reports the following in £.

Cost of goods sold for 2018 under the FIFO method is closest to:

• £48,530.

• £49,080.

• £52,520.

Zimt AG started business in 2017 and uses the FIFO method. During 2017, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2018, it purchased another 50,000 units at €11 each and sold 45,000 units for €22 each. Assuming the firm uses a periodic inventory system, its 2018 ending inventory balance (€ thousands) was closest to:

• €105.

• €109.

• €110.

Which of the following most likely signals that a manufacturing company

expects demand for its product to increase?

• Finished goods inventory growth rate higher than the sales growth rate

• Higher unit volumes of work in progress and raw material inventories

• Substantially higher finished goods, with lower raw materials and work- in- process

Which costs incurred with the purchase of property and equipment are

expensed?

• Delivery charges

• Installation and testing

• Training required to use the property and equipment

BAURU, S.A., a Brazilian corporation, borrows capital from a local bank to finance the construction of its manufacturing plant. The loan's conditions are listed in the figure.

The construction of the plant takes two years, during which time BAURU earned BRL 10 million by temporarily investing the loan proceeds. Which of the following is the amount of interest related to the plant construction (in BRL million) that can be capitalized in BAURU’s balance sheet?

• 130.

• 140.

• 210.

Intangible assets with finite useful lives mostly differ from intangible assets with

infinite useful lives with respect to accounting treatment of:

• revaluation.

• impairment.

• amortization.

Companies X and Z have the same beginning-of-the-year book value of equity and the same tax rate. The companies have identical transactions throughout the year and report all transactions similarly except for one. Both companies acquire a £300,000 printer with a three-year useful life and a salvage value of £0 on 1 January of the new year. Company X capitalizes the printer and depreciates it on a straight-line basis, and Company Z expenses the printer. The following

year-end information is gathered for Company X.

Based on the information given, Company Z’s return on equity using year-end equity will be closest to:

• 5.4%.

• 6.1%.

• 7.5%.

Juan Martinez, CFO of VIRMIN, S.A., is selecting the depreciation method to use for a new machine. The machine has an expected useful life of six years. Production is expected to be relatively low initially but to increase over time. The method chosen for tax reporting must be the same as the method used for financial reporting. If Martinez wants to minimize tax payments in the first year of the machine’s life, which of the following depreciation methods is Martinez most likely to use?

• Straight-line method.

• Units-of-production

  method.

• Double-declining balance method.